The USA has the highest statutory corporate tax rates in the world, followed by Japan, France and Belgium. This partially explains the merger of America’s Burger King, with Tim Horton’s of Canada. Burger King will still be operated out of Miami, but the combined corporate headquarters will be located in lower-tax rate Canada. This merger is an example of tax inversion, or corporate inversion, which is the relocation of a corporation’s headquarters to a lower-tax nation, or corporate haven, usually while retaining its material operations in its higher-tax country of origin.
The three highest corporate tax rate nations are the US, Japan and France. Not surprisingly, all three have high debt-to-GDP ratios.
Unlike most countries, which only tax domestic profits, the US taxes the earnings of foreign subsidiaries of US companies when the money is transferred back to the US. Of course, this leads to US companies NOT transferring earnings of foreign subsidiaries back to the US if they can help it.
Of course, larger corporations are able to lower their tax bite better than small corporations. Learn what a “Cyprus Sandwich” is at the video link!
With rising sovereign debt and pension/healthcare liabilities, governments will be looking for MORE corporate and individual tax revenues.
In addition to Cyprus Sandwiches, there are also Double Irish and Dutch Sandwich to lower corporate taxation.
But with small firms being taxed at higher effective corporate tax rates than large corporations, we are seeing declining entrepreneurship.
According to a study by the Brookings Institute, American entrepreneurship is declining, and small firm creation.
And job reallocation is on a downward spiral.
Governments keeping borrowing and spending, allowing large corporations to hide their income (but not small corporations). Throw in taxes from the Affordable Healthcare Act and we have a partay!
On a side note, the merger of Burger King and Tim Horton’s creates the perfect storm for a meal: a Whopper with a cup of Tim Horton’s lousy coffee. Yeech!!